Pi Haizhou: Interest Reduction Is Not The Same As Bull Market.

The central bank announced the interest rate cut: since November 22, 2014, the benchmark one-year lending rate has fallen by 0.4 percentage points to 5.6%. However, the one-year deposit rate has only fallen by 0.25 percentage points to 2.75%. The central bank also announced that the upper limit of the deposit interest rate floating interval should be adjusted to 1.2 times from 1.1 times.

This is an unexpected cut in interest rates. Because of this, the interest rate cut is a pleasant surprise for the stock market. Therefore, the news of interest rate cuts has brought great encouragement to the market. The public opinion in the market is very loud when the bull market is cut. The stock market in November 24th also rose to meet the interest rate cut. It seems to give the bull market an excellent evidence.

For the current downturn in China's economy, it is necessary to cut interest rates. The 24 day's stock market also shows that this time cut interest rate to stimulate the market is also obvious. However, because of the interest rate cut, or because of the advent of the interest rate cycle, it is a lack of evidence that the bull market is coming. The bull market is determined by many factors, and the news of interest rate reduction is just a short-term manifestation.

Theoretically speaking, interest rate cuts are beneficial to stimulating investment and improving the investment value of stocks. But the actual situation is not so simple. From a macro perspective, the reason why the central bank cut interest rates is because of the macroeconomic downturn. For example, the sustained downturn in China's economic development is obvious to all: the GDP growth rate in the third quarter was 7.3%, the lowest in the year; HSBC China manufacturing industry in November. PMI (PMI) fell to 50, unchanged from the line of prosperity and drought, a new low in six months; in October, CPI reached a low level of nearly five years. The reason is that it is not enough to cut interest rates once, and there are two or three interest rates cut because it is widely believed that only one rate cut can not save the economy. Now that the economy is in recession, Economic barometer How can the stock market go up sharply or even go out of the bull market?

From the historical point of view, the adjustment of interest rate is not necessarily related to the evolution of the stock market. It does not show that the trend of interest rate cut is rising, and the interest rate market is bearish. As from August 2006 to December 2007, the central bank carried out 7 rate hikes, but the 7 increase in interest rates was accompanied by a rise in the market. On the contrary, the four rate cut in September 2008, October, November and December brought about a fall in the market. Therefore, the view that cutting interest rates will open bull market is untenable in history.

Moreover, this rate cut is a kind of asymmetric interest rate cut. Loan interest rates fell much more, down 0.4 percentage points, but deposit interest rates fell by only 0.25 percentage points. And the central bank also relaxed the deposit interest rate floating range, the deposit interest rate floating interval upper limit from 1.1 times to 1.2 times. After the news of the interest rate cut was announced, banks announced that the deposit interest rate should be raised according to the upper limit of the floating interest rate interval. This means that the deposit rate of banks has not actually been lowered, or the interest rate remains unchanged. This also means that this rate cut does not enhance the investment value of stocks, nor can it stimulate investors to invest in additional stocks.

More Than This, Rate cut It will not change the fundamentals of the stock market itself. Some of the substantial problems that have plagued the healthy development of the stock market will not change because of the interest rate reduction. For example, China's stock market money market problems, IPO, private placement, size of non cash, the three carriages draw blood, stock market supervision is not strict, investor protection is not strong. These problems will not be solved by cutting interest rates.